RETAINED EARNINGS (RE)

Retained earnings of a company is the accumulated net income that is retained by the company at a particular point of time. At this particular period, the net income or net loss is transferred from the profit & loss account to the retained earnings account.If the balance of the retained earnings is negative,it is called accumulated deficit/loss. This is then reported in the shareholders' equity section of a company's balance sheet.

A growing company normally avoids paying dividends so that it can use its RE to fund additional growth of the business in areas such as working capital, research and development, capital expenditures, acquisition and marketing. Another possibility is that RE may be held in reserve in expectation of future losses such as from the sale of a subsidiary or the expected outcome of a lawsuit.

As a company reaches maturity and its  growth slows and so it has less need for its retained earnings, making it more inclined to distribute some portion to its shareholders in the form of dividends. Ending retained earnings can be calculated as thus:
Beginning RE + Profits/Losses - Dividends.

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